KEY POINTS
- The Federal Reserve is set to hold the policy rate at 3.5%–3.75% for the third consecutive meeting, with CME FedWatch pricing a 100% probability of no change in Jerome Powell's final FOMC decision as chair.
- March CPI accelerated to 3.3% — the highest reading since May 2024 — driven by Iran-conflict energy prices, leaving the Fed with limited room to acknowledge weaker growth without sounding dovish enough to spark another inflation expectations leg up.
- Watch the post-meeting press conference for any signal on Kevin Warsh's expected handover and the September meeting; the December 2026 fed funds futures contract still prices only 18 basis points of easing for the rest of the year.
Powell Holds the Line One Last Time
The Federal Reserve will leave the federal funds target range at 3.5% to 3.75% on Wednesday afternoon, marking the third straight pause of 2026 and the final policy decision of Jerome Powell's chairmanship. Traders gave up debating the decision itself two weeks ago. CME Group's FedWatch tool now prices a 100% probability of no change, an extraordinary reading in a meeting whose policy outcome is normally the central event of the month. The drama, as CBS News framed it bluntly, is in the press conference and the dot plot, not the statement.
The reason is the inflation backdrop Powell inherits as he closes out his term. The Consumer Price Index accelerated to 3.3% on an annual basis in March, the highest reading since May 2024 and 130 basis points above the Fed's 2% target. Energy contributed roughly 80 basis points of that headline figure, with the Iran conflict and the ongoing partial closure of the Strait of Hormuz keeping Brent crude above $100 per barrel for most of April. Core CPI held at 2.9%, sticky enough that any dovish tilt from the dais risks reigniting the inflation expectations problem the Fed spent 2025 trying to suppress.
The Growth Side of the Ledger
The other half of the dual mandate is sending a different signal. Q4 2025 GDP came in at just 0.5% annualized in the BEA's third estimate, and the Atlanta Fed's GDPNow nowcast for Q1 2026 has drifted down to 1.2%. The official Q1 advance release lands Thursday at 8:30 a.m. ET, less than 24 hours after Powell speaks, which is part of why the press conference language matters so much. If Powell signals that the FOMC is monitoring growth risks closely, traders will read that as preparing the ground for a September cut. If he reframes the slowdown as the intended consequence of restrictive policy, the bond market will fade the dovish hopes and the 10-year yield will probably grind toward 4.40%.
The labor market gives Powell cover to stay patient. February JOLTS showed job openings holding at 6.9 million, with hires soft at 4.8 million but quits and layoffs both well-behaved. The March JOLTS print does not arrive until May 5, and the April employment situation report drops Friday morning, so Powell has another 48 hours of data flowing into his policy stance before the market really digests this meeting.
What Markets Want to Hear About Warsh
The unspoken question hanging over the press conference is the transition. Kevin Warsh, the former Fed governor and longtime Powell critic, is widely expected to take the chair when Powell's term ends in May. Warsh's public commentary in 2025 emphasized financial stability risk and a preference for a smaller Fed balance sheet, both of which would imply a marginally tighter policy stance than the current FOMC consensus. He has not, however, signaled hostility to the current rate path, and the Treasury market has not aggressively priced a regime change.
Powell will not endorse or comment on his successor — the convention is firm — but the way he frames the Fed's reaction function in his final press conference effectively shapes Warsh's starting point. If Powell describes the current 3.5%-3.75% range as "appropriately calibrated" rather than "appropriately restrictive," he is leaving Warsh more room to ease later in the year. If he sticks with restrictive, he is locking the next chair into a higher-for-longer posture.
The September Meeting Is the Real Story
The December 2026 fed funds futures contract prices roughly 18 basis points of cuts from current levels by year-end, implying about a 70% probability of one quarter-point reduction. The September meeting is where most of that probability is concentrated, and Powell's commentary on the bar for easing — particularly whether he ties it to a specific inflation glide path or a labor market threshold — will determine whether September stays a live cut or drifts to December.
For traders, the cleanest tell on the post-meeting tape is the eurodollar curve in the front year. A flatter curve from the September contract through March 2027 means the market believes Warsh will follow Powell's playbook. A steeper curve means traders are betting on a regime change. Anything in between leaves the door open to a volatile summer for fixed income.
The next data inflection points are tightly clustered: Thursday's Q1 GDP advance estimate at 8:30 a.m., Friday's nonfarm payrolls and unemployment rate, and the May 13 release of April CPI. By the time the bond market digests all three, Powell will be in his final week as chair and the rate path discussion will already have shifted to what Warsh inherits, not what Powell leaves.
